What is a ragpull
Talking about the crypto industry, we have to mention many pools: mining pools, liquidity pools, staking pools.
They represent an association of someone, because “pool” is translated from English as “association”.
And there is such a thing as a ragpool (sometimes spelled “ragpool”). Is that also an amalgamation of something?
No, there isn’t. In English it’s spelled “rug pull.” Literally, it translates to “pull the rug out. It’s a metaphor.. And the rug pull itself is a fraudulent scheme, usually used in DeFi. What’s the point?
First, you create a new token. Then all sorts of ways disperse its price. After that, all the value the tokens have been endowed with is withdrawn by the developers, and the price drops to zero.
There are several ragpoll options. Let’s look at each of them.
Types of ragpolls
Ragpulls are thought to have three variants: liquidity theft, limit sales orders, and price collapse. The most popular is the first one.. Theft of liquidity occurs by creating a liquidity pool.
There you set some kind of ratio between tokens, and then investors start filling the liquidity pool, and developers take everything they’ve contributed.
Limiting sell orders is the ability to sell newly created tokens only to developers. This is done by using encryption.
Thus, new investors come to the pool, exchange their conditional bitcoins for “shieldcoins”, but can not sell such garbage. Developers take all the conditional bitcoins for themselves.
The price collapse is a classic example of aggressive advertising. First, the developers proclaim loudly that their token is some kind of holy grail.
By such actions, they raise the price, selling off the token itself at the same time. Then the price collapses and the developers have already sold out.
Unlike the first two methods, this variant is not so criminal but rather unethical. In general, the method is close to the “dump and dump” scheme.
There is a conventional division of ragpulls into “hard” and “soft.” The former include restricting sales orders and stealing liquidity, the latter include price collapse.
The point is the legitimacy of the method. The first two are blatant fraud, that is clearly an illegal action.
And the price collapse is just an unethical action without any obvious blatant criminality. You can conduct aggressive advertising, but not fully comply with the stated.
There may not be any questions from the authorities, depending on the jurisdiction.
Examples of ragpolls
In late August, blockchain-based yield aggregator Solana Luna Yield “took off and evaporated.”. In this case, about $6.7 million was withdrawn.. Initially, it looked pretty decent.
The developers claimed full transparency, even getting support from another project on Solana, SolPad. Before the initial posting on DEX (IDO) everything looked fine.
This took place on August 16. And on August 19, all of the clients’ funds were transferred to the Tornado Cash mixer moved to the Tornado Cash mixer.
A little earlier in June 2021, the WhaleFarm project, which promised “millions in earnings,” also evaporated. Only the creators took out less – $2 million.
And there were quite a few alarming things beforehand, from the anonymity of the development team to a hundred percent growth of the token in a few minutes.
It ended with the deletion of Twitter and Telegram accounts, as well as the price of the token collapsed to $0.2.
In October 2021, AnubisDAO was able to pull in $60 million from customers in about 20 hours. The project didn’t even have an official website, just a Discord server and a Twitter account;
How to protect yourself from ragpolls
There is no one hundred percent way to be completely safe. But there are a number of aspects to consider in order to reduce the risks.
First: The personality of the developer behind the project. Find out as much about him as you can: what projects he’s been involved in, who he is, what experience he has, and so on.
Again, the criterion is not an absolute. Think of bitcoin with its Satoshi Nakamoto or Shiba Inu with Ryoshi. Both developers are still unknown, but the projects have stood the test of time.
Second: what amount of liquidity is blocked. If none, you better bypass the project. Most likely you have run into a ragpoll.
Liquidity must be protected by smart contracts for a period of three to five years from the start of the initial offering.
Pay attention to the percentage of locked liquidity in the pool (TVL). Ideally, it should not be less than 80%.
Third: You can try to buy a small amount of new token and immediately sell. This method will allow you to find out whether there is a restriction on selling. If there is, you will be warned.
Fourth: Pay attention to how fast the price of your new token is rising.
If the speed seems cosmic, if in a few hours or minutes the cost rises by tens or hundreds of percent, then most likely nothing good can come of it.
Especially this should give you a bad idea when there are few holders of the new coin.
Fifth: The promise of huge returns. Usually projects like pyramid schemes or Ponzi schemes do this. Free cheese is only in a mousetrap.
Sixth: Pay attention to whether the project has a third-party audit. This is a point that has caused many people still doubt the reliability of Tether.
After all, the parent company stablecoin USDT began publicly auditing relatively recently.
In short, ragpolls are fraudulent schemes involving the creation of new tokens. Usually developers promise a lot, but do not finish their projects and quickly flush with what they have managed to earn.